China: Social security contributions reduced in response to COVID-19

Employer Action Code: Act

In an attempt to mitigate the adverse financial effects of the COVID-19 epidemic on employers (especially those in Hubei province), the Ministry of Human Resources and Social Security, Ministry of Finance, Ministry of Housing and Urban-Rural Development, and National Healthcare Security Administration have announced temporary reductions in, and exemptions from, the payment of contributions toward social security benefits and housing provident funds.

Key details

Employer social security contributions for retirement pensions, workers compensation, unemployment and health (including maternity) benefits are included in the exemption/reductions. The extent and duration of the measures depend on the province, autonomous region or municipality, and size of the employer’s workforce.
For retirement pensions, workers compensation and unemployment benefits:

• Hubei province: All employers, regardless of size, are exempt from paying social security contributions for the five-month period between February and June 2020.
• All other provinces, autonomous regions and municipalities:
  • Small to medium employers are exempt from paying social security contributions for the five-month period between February and June 2020.
  • Large employers may reduce their social security contributions by 50% for the three-month period between February and April 2020.
    Note: The exact definition of small to medium employers differs depending on the industry; it broadly covers companies with fewer than 1,000 employees and an operating income of less than CNY 200 million.

For health (including maternity) benefits, all employers, regardless of location or size, may reduce their social security health contributions by 50% for the five-month period between February and June 2020 provided that local social security medical funds can afford at least six months of medical expense payments. 

Furthermore, all employers, regardless of location or size, experiencing “severe difficulties” in terms of production and operation due to the COVID-19 epidemic may request a six-month deferral in the payment of their social security contributions without incurring any penalties for late payment.

Employers severely affected by the COVID-19 epidemic also have until June 30 to apply to either defer, reduce or stop payments to housing provident funds, although this may only be done following consultation with employees.

Because the social security system is administered on a regional basis, each province, autonomous region and municipality is responsible for setting the extent and duration of the exemptions/reductions applicable to that region, provided they meet the minimum requirements set out above. Some local social security bureaus have already confirmed how the above changes will be applied, with some additionally deferring or cancelling the annual increase to the earnings ceiling for determining social security contributions.

Employer implications

The move could provide significant financial relief for most employers. The total combined percentage of social security contributions for retirement pensions, workers compensation and unemployment benefits depends on the province, autonomous region or municipality but is generally 15% to 20% of employee salaries (subject to earnings limits). Deferring or cancelling the annual adjustments to the social security contribution earnings thresholds could also further reduce employer social security contribution costs in the provinces where this has been announced.